London market slowdown unlikely to spread nationwide, says new analysis

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The slowing market in London, with falling prices and sales, has been spreading into Southern England as a whole but there is little sign of is spreading any further out, according to a new analysis.

London house prices increased by 70% between 2010 and 2018, much faster than incomes growth but the rate of growth slowed rapidly after 2016 as stretched income multiples, new mortgage regulations and a slew of tax changes reduced demand, says the latest market insight report from property firm Zoopla.

In London sales peaked in 2014 and are now 25% lower but it also points out that housing sales volumes have fallen back much further than prices. Transaction volumes peaked in 2014 at 118,500 and have since declined by 25%. Yet the average price of a London property is still 20% higher than in 2014.

‘In our view, house prices in London are well on the way to re-aligning to what buyers are prepared to pay, albeit in a market with significant reduced sales volumes which creates scarcity and supports pricing levels,’ said Richard Donnell, research and insight director at Zoopla.

He believes it is important to highlight that today’s price declines are small compared to 2009, when there were double digit price falls. ‘The vast majority of markets in London are registering annual price falls of less than 5%. The reality is that the reductions in residential values over the last three years are best described as a modest retrenchment in prices,’ he explained.

‘This is to be expected after a strong growth phase as the market adjusts to weaker demand brought about by stretched affordability levels and a slew of tax changes between 2014 and 2017,’ he added.

He also pointed out that Hometrack’s localised house price indices show that housing markets in Southern England, defined at the South East, East and South West of England, are now following the London trend. Some 36% of homes are in markets with annual price declines.

‘We expect both the coverage and level of price reductions in Southern England to remain modest, concentrated in higher value areas adjacent to London or in higher value commuter towns. We expect price falls to be shorter lived than we have seen in London, most likely extending into early 2020,’ said Donnell.

‘We are not predicting a subsequent bounce back in average prices, but we would expect sales volumes, which have fallen by 10% in Southern England since 2015, to plateau and then start to increase over time. Sales volumes are more important to agents and developers than price growth. In London, which is further down the road to a pricing realignment between buyers and sellers, we currently expect sales volumes to plateau and slowly start to increase over the latter parts of 2019 and into 2020,’ he explained.

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